istock.com/Adam Calaitzis
Vertically integrated
Melbourne’s train franchise is a vertically integrated model which means the train operator (the franchisee) is responsible for train operations and maintenance of infrastructure and rolling stock.
The State owns the rail assets and the franchisee leases them for the contract term, with the obligation to maintain them. This integration means the party who operates on the infrastructure is the party who maintains the infrastructure. No finger pointing.
The current franchisee is Metro Trains Melbourne, a company with shareholders MTR, John Holland and UGL. The franchise is commonly referred to as “MR4”, the fourth contract in the evolution of privatisation since 1999.
The parties to the partnership
The contracting party with the franchisee is Public Transport Victoria, with the Department of Transport an important stakeholder in the relationship. PTV is the government contract manager for MR4.
The focus of the contracts is on working in partnership – crucial when you consider the contract term, the risks and the quantum of investment.
Modular design
The train franchise contract comprises eight modules: franchise; payments; passenger experience; operations; projects; infrastructure; operational control and management; rolling stock.
This reflects the fundamental areas of the rail business, as well as making contract management more efficient perhaps.
Managing the modules
In the franchising context, governance means enabling appropriate forums to facilitate effective decision-making, role clarity and managing changes to plans or standards throughout the franchise term.
Both parties to the contract need to be active contract managers in their own right – there are ongoing commitments, reviews and interactions built into the modules.
The trick, of course, is to find the balance between heavy and light contract management. A manager who peers over your shoulder every hour to ask how you’re doing, is just as unhelpful as one you never see. Has the current contract struck this balance? It’s fair to say that it’s a compliance heavy contract, however, when you consider the importance of the services to be delivered, it’s appropriate.
Governance forums
The Network Development Partnership (NDP) is the primary forum for the parties to discuss tactical and strategic issues like operational planning, the implementation of projects and other pressing matters like, say, pandemics. The current NDP comprises senior representatives of PTV, DoT and the franchisee - akin to C-suite or senior management meetings.
Given the complexity of the contract, other interfaces between the parties are significant, for example: Standards Governance Group; Infrastructure Review Group; VicTrack Review Group; Accessibility Working Group; Projects Steering Committee; Fleet Liaison Committee, to name only half of them.
Skilful people + relationships = better governance
Governance forums are managed by experienced public sector managers and franchisee corporate and operational folks. They keep the contractual engine running.
And they will need to be equally experienced in the future.
A governance structure without an informed client is dysfunctional, whereas informed, skilful and diligent representatives from both parties enables enduring contractual and relationship management.
Considering the long term nature of the franchise, it must live through changes of government, Ministerial portfolio changes, departmental changes and environmental changes – so it needs enduring relationships between client and contractor.
A continual flow of information
The governance task also manages a considerable number of annual plans required under the franchise, for example, an annual business plan and operational and asset plans. Each of these articulates how key areas of the franchisee’s business is performing against contractual targets and expectations.
Transparency rules as it should, and feeds into a continuous improvement mindset of the franchisee.
Reflecting a desire to be kept fully informed regarding all aspects of the franchise, the contract establishes a significant reporting regime too. This is crafted to drive a compliance culture within the franchise, as well as furnishing considerable data to PTV - as the ultimate owner of the rail assets for the State that’s probably fair enough.
Taken together, the reports and operational plans are designed to improve oversight and transparency, capturing information regarding the franchisee’s financial performance, business and strategic direction, contractual compliance and train and asset performance.
There is no doubt the government will be well-versed on the state of the network and operations when the data room is established for the next round of refranchising. Well played.
Next time, we take a look at risk and reward - the commercial and financial frameworks.